House Republicans Release Flood Insurance Relief Bill

House GOP leaders last week put the final touches on legislation that would significantly water down a recently enacted overhaul of the much criticized federal flood insurance program, easing many premium increases and allowing below-market rates to be passed on to people buying homes with taxpayer-subsidized policies.

The leaders released a final version of the bill, H.R.3370, Homeowner Flood Insurance Affordability Act of 2014, on Friday. (A copy of H.R. 3370 is embedded at end of this article.)

The reform law, the Biggert-Waters Flood Insurance Reform Act of 2012, was aimed at weaning hundreds of thousands of homeowners off of subsidized rates and required extensive updating of the flood maps used to set premiums, but its implementation has stirred anxiety among many homeowners along the Atlantic and Gulf coasts and in flood plains, many of whom are threatened with unaffordable rate increases.

GOP aides say their measure would also repeal a provision that threatens hundreds of thousands of homeowners with huge premium increases under new and updated government flood maps. Those homeowners currently benefit from below-market rates that are subsidized by other policyholders and the new legislation would preserve their “grandfathered” status. The aides requested anonymity because they spoke before the measure was publicly released.

Anger over the higher rates has fueled a bipartisan drive to delay or derail many of the 2012 changes. In response, the Senate last month took a different approach, passing a bill to delay the changes, which were aimed at putting the flood insurance program on sound financial footing. The flood program is presently $24 billion in the red, mostly because of huge losses from Hurricane Katrina and Superstorm Sandy.

The House measure was expected to be released on Friday and a vote is likely next week.

It also would allow homeowners to pass on government-subsidized premiums to people who buy their homes instead of requiring purchasers to pay actuarially sound rates immediately, as required by the 2012 law, named after former Rep. Judy Biggert, R-Ill., and Rep. Maxine Waters, D-Calif. The new rates are particularly high in older coastal communities in states like Florida, Massachusetts, and New Jersey, and have put a damper on home sales as prospective buyers recoil at the higher, multi-fold premium increases.

The measure would also give relief to people who have bought homes after the changes were enacted in July of 2012 and therefore face sharp, immediate jumps in their premiums; they would see those increases rolled back, though they would get annual rate increases of perhaps 15 percent; aides said the rate increases hadn’t been finalized as of Thursday afternoon.

But people whose second home is in a flood zone and those whose properties have repeatedly flooded would continue to see their premiums go up by 25 percent a year until reaching a level consistent with their real risk of flooding.

The Federal Emergency Management Agency, which runs the program, would retain the ability to increase premiums each year, but the increases wouldn’t be as steep as mandated under the 2012 law. The House bill calls for a surcharge on each of 5.6 million policyholders to offset the cost of continued subsidies for about 1.1 million homeowners.

The 2012 reforms of the flood insurance program, which passed with sweeping bipartisan support, were aimed at fixing flaws like highly-subsidized premiums for frequently-flooded properties and expensive vacation homes. The law preserved subsidies for people whose main residence is located in a flood zone but wouldn’t allow them to pass those subsidies along to the family that buys the home. That has put a damper on real estate markets and property values in states like Florida, where more than a quarter of a million homeowners pay subsidized rates. Some homeowners face a Catch-22: Once phased in, the rates are beyond their finances but, because of the higher insurance rates, they face having to sell their properties at distressed prices.

Projections of what the new rates will be have caused panic among hundreds of thousands living in low-lying coastal areas and near the banks of rivers and their tributaries subject to flooding.

The Senate last month passed with bipartisan support legislation that would put much of the 2012 law on hold for four years. And last month’s government-wide spending bill contained a provision to put off higher premiums required by new flood maps, delaying for at least a year higher premiums on hundreds of thousands of homeowners who pay grandfathered, below-market rates for insurance because their homes were in compliance with earlier flood codes.

The changes proposed by the House dismayed supporters of the 2012 law, who said it began to remove incentives for people to live in costly, flood-prone areas.

“We are concerned that the end product would thoroughly undercut the reforms that more than 400 House members voted for in Biggert-Waters,” said Steve Ellis, vice president of Taxpayers for Common Sense, a Washington-based watchdog group. “It would artificially-reduce premiums for a huge number of policyholders and actually create a sort of bifurcated system where some people are living under one set of rules and other people are living under another set of rules.”